The managing director of the International Monetary Fund, Kristalina Georgieva, has called for a strong regulatory push to tackle crypto assets and, failing that, consider a ban.
Speaking to reporters after a debt restructuring roundtable at the G20 summit of finance ministers and central bank governors in Bengaluru, India, on 24 Feb., Georgieva said it was important to differentiate between central bank digital currencies that are backed by the state and stable coins, and crypto assets that are privately issued.
She said, “There has to be very strong push for regulation… if regulation fails, if you’re slow to do it, then we should not take off the table banning those assets, because they may create financial stability risk.”
U.S. Treasury Secretary Janet Yellen, who was also at the meeting, told Reuters she had not suggested the “outright banning of crypto activities, but it was critical to put in place a strong regulatory framework”.
The summit did not produce its usual communiqué, because of disagreements with China over whether to condemn Russia for its war in Ukraine, but only an outcome statement.
In it the G20 finance leaders welcomed the IMF discussion paper on the macro-financial implications of crypto assets.
Crypto assets ‘should not be legal tender’
The report published on 8 Feb. proposes a framework to help develop a comprehensive and coordinated policy response.
IMF directors, in their discussion of the report, observed that while the supposed potential benefits from crypto assets have yet to materialise, significant risks had emerged.
These included macroeconomic risks, which encompass risks to the effectiveness of monetary policy, capital flow volatility, and fiscal risks.
The directors also noted serious concerns about financial stability, financial integrity, legal risks, consumer protection, and market integrity, the IMF said in a press release.
They agreed that crypto assets have implications for policies that lie at the core of the IMF’s mandate.
In particular, they said the widespread adoption of crypto assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, and exacerbate fiscal risks.
Widespread adoption could also have significant long-term implications for the international monetary system.
“Directors generally agreed that crypto assets should not be granted official currency or legal tender status in order to safeguard monetary sovereignty and stability,” the IMF said.
Shared vulnerabilities
The G20 also welcomed a report by the Financial Stability Board (FSB) of the Bank for International Settlements on decentralised finance (DeFi).
The FSB is expected to deliver recommendations for the supervision and regulation of stablecoins and crypto assets to the G20 later this year.
DeFi is an umbrella term for digital asset lending, trading and other services that aim to replicate aspects of the traditional financial system with decentralised governance structures.
The FSB concluded in its report on the financial stability risks of decentralised finance, released earlier this month, that DeFi may have wide-ranging implications for traditional financial markets while it inherits and potentially amplifies some that markets vulnerabilities.
Some of the shared weaknesses with traditional finance include operational fragility, liquidity and maturity mismatches, leverage and interconnectedness.
Linkages between DeFi, traditional finance and the real economy are so far limited, the FSB said, pointing to modest impact of the November 2022 collapse of crypto exchange FTX on traditional financial markets. However, this could change if the space were to grow and become more mainstream.
Both the IMF and FSB will produce a common Synthesis Paper for the G20 to support a coordinated and comprehensive policy approach to crypto assets.
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